Mats Persson is Director of Open Europe, a think-tank with offices in London and Brussels, and an advisory board member of Open Europe Berlin.

Brixit: why the 'Norwegian model' simply wouldn't work for the UK

Though many have gone off the idea, some people who want the UK to leave the EU still cling to the hope that Britain can “become like Norway”, by leaving the EU to join its more detached cousin, the European Economic Area. Or rather, it’s unclear whether they actually want the UK to become like Norway – the debate rarely gets to that level of detail – but they do seem to defend Norway’s arrangement in Europe with a passion that would surprise even the Norwegians.

This continues to perplex me. Because, though there are some plausible scenarios for the UK outside the EU, any In/Out campaign that was fought on the premise that the UK follows Norway’s model would almost certainly result in an “In” vote.

Here’s why:

Norway implements roughly 75 per cent of all EU laws, including rules governing the labour market (such as the working time directive). Some of these are “add ons”, such as crime and policing and the Schengen deal on open borders, but most of it is just part of the EEA package.

But despite being party to all these laws, Oslo has exceptionally limited ability to influence them. This isn’t some tired old cliché, but clearly and manifestly the reality: no veto at the European Council. No votes in the Council of Ministers. No MEPs. No judges at the ECJ. No European Commissioner. As I’ve noted before, should Britain become like Norway, bizarrely, it would be home to 36 per cent of Europe’s wholesale finance market, but with no votes on huge swathes of regulation governing that market. It would have to accept EU employment law – currently costing UK employers £8.6bn a year – but, again, with no votes on these laws. Good luck trying to win over business in that referendum campaign…

EEA-advocates think they’ve found a clever answer to this: it’s true, they say, that Norway cannot vote on laws, but it makes up for it by having a big say over the Commission when laws are prepared. This is a ridiculous argument, as that influence amounts to peanuts. The EEA agreement obliges the Commission to consult Oslo before it tables a proposal – the Commission is also obliged to consult various other stakeholders (including business, NGOs and others), making Norway just one of a cacophony of voices. As one of a range of actors, Norway may also sit on expert committees, have "access" to comitology committees (a very opaque procedure that decides the exact implementation of a law) – and can have some representation in EU agencies (which have no legislative powers).

The Commission doesn’t always get it right in its original proposals, to put it mildly. So, say the UK was like Norway, the original, and fundamentally flawed, proposal of the Commission’s AIFM Directive – regulating hedge funds, private equity firms and other ‘alternative’ investment, the bulk of which are in Britain – would, absent a UK-led blocking minority in the Council, have gone through with the protectionism and arbitrary leverage limits favoured by the Commission. This would have erected massive barriers to investment flows between the City and the rest of the world (and probably an exodus of UK financial business). Now, of course there is a constant trade-off between access to the Single Market and the terms of access, but the list of things "that could have been far worse" absent UK votes, from the Capital Requirements Directive to the opt-out from the EU’s 48 hour working week (worth billions to UK employers), to the "grace period" for employers in the Agency Workers Directive, is a long one.

Again, EEA-enthusiasts think they’ve got the answer. Under the EEA agreement, they say, Norway can “veto” an unwanted EU law.

No, it can’t. It’s true that, in theory, it can refuse to incorporate a piece of EU legislation into the EEA, sometimes referred to as a veto. But this is better described as a ‘right to refusal’ – and happens to be exceptionally weak.

First, it cannot stop the EU going ahead with something it does not like (so it’s not a “veto” per se).

Secondly, since the refusal doesn’t stop the legislation happening, if it relates to something like new product standards, for example, Norway cannot use the old ones to export to the EU instead (so, worst case, it could be locked out of Single Market in the given area).

Finally, once the right of refusal is used this not only applies to the individual measure concerned but also leads to the suspension of the affected part of the relevant annex to the EEA Agreement, which would also cease to apply. The "affected part" of an annex is a matter for consideration by the EEA Joint Committee (i.e. EU and Efta countries).

Applied to the UK, potentially, you could say no to one financial services regulation, say AIFMD or CRD4, and be locked out of related measures – including those that provides market access or deals with behind-the-border liberalisation, such as MiFID. Norway’s exports – a large chunk in the form of oil and gas – are far less vulnerable to this type of ‘spill-over’ protectionism than the UK’s, which is more oriented towards highly mobile services industries.

The weakness of the right to refusal is why there’s only the odd example of Norway not implementing an EU law (in fact, Norway is amongst the best in Europe at implementing EU laws swiftly and thoroughly – far better than the likes of Italy, Spain, Greece and even Germany). A White Paper by the Norwegian Government noted that: “our right of veto has been significantly curtailed since we entered into the EEA Agreement.”

There are other drawbacks with the Norwegian model, if it were to be applied to the UK, such as having exports subject to bureaucratic ‘Rules of Origin’, which can involve the EU imposing tariffs on goods exported to Europe that contain components from outside the EU.

The Norwegians accept this arrangement for various, Scandi-specific reasons. But the point is that for the UK, proportionate to the number of EU measures in domestic legislation, the net effect of joining the EEA would probably be less opportunity to hold Brussels to account – not more. Pretty ironic given that more control over national affairs is often given as a reason for the UK to withdraw.

So this one just won’t fly. Sorry.

Though coming with a range of problems of its own, the Swiss option – based on a series of specific market access deals – would be better as it could allow the UK to pick and choose more favourable trading access and terms of access (depending on the mood of the rest of the EU). It would require complex renegotiation, of course. Much like staying in but going for new membership terms…